Bloomberg:
An overabundance of cash in U.S. interest-rate markets has for the first time ever pushed the amount that investors are parking at a major central bank facility to more than $1 trillion.
Eighty-six participants on Friday placed an unprecedented total of $1.04 trillion at the Federal Reserve’s overnight reverse repurchase facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous all-time high volume of $991.939 billion from June 30, New York Fed data show.
The record is far from unexpected, but does once again bring into focus growing imbalances in front end markets that have helped keep downward pressure on short-end rates. And market observers think that its popularity is likely to increase further.
“I think the facility continues to grow in the next few months as the Treasury continues to pay down bill supply and money fund assets only continue to increase,” said Gennadiy Goldberg, senior interest rates strategist at TD Securities. “Usage of the facility will probably remain high for quite some time.”
The latest increase came on the final trading day of the month and also coincides with the approach of another key Treasury-market milestone: the official reinstatement of the U.S. debt ceiling. That’s set to come back into effect at the end of the month, and the rules surrounding the impact of its return on the Treasury cash balance have been a significant factor in shaping the glut of dollars.
Demand for the so-called RRP facility has surged since the Fed boosted the offering rate on it to 0.05% from 0% last month as a flood of cash continues to overwhelm the U.S. dollar funding markets. That’s in part a result of central-bank asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system.
As a result, liquidity in the funding markets has continued to swell, especially as the Treasury endeavors to reduce its cash balance to $450 billion before the debt cap is reinstated at the end of the month. This has forced the government to make additional cuts to its bill supply, further exacerbating the supply-demand imbalance and boosting the Fed’s RRP facility.
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